Consumers still waiting for full oil price benefits

Drop in BA's long-haul fuel surcharge a 'token gesture', says Ryanair

By Sarah Arnott
Sunday 23 October 2011 08:36
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The cost of oil has nearly halved in the past four months yet the saving has not been passed on to consumers in many areas of the economy, analysts warned yesterday, with conflicting news from the transport and energy sectors.

The price of oil is now hovering at the $75 per barrel mark, compared with its high of $147 in July. While airlines have announced lower fares in recent days and petrol prices have fallen, there is little prospect of any imminent reduction in home energy bills.

British Airways reduced fuel surcharges yesterday, by between £5 and £13 on selected flights. In the motoring sector, Asda said it was dropping its unleaded price to 99.9p per litre, as of this morning, bringing it below £1 for the first time since December. Sainsbury's, which sets its fuel prices locally, said it was also monitoring the situation and is planning a price cut of its own.

However, specialists in the home energy sector warned that consumers have not seen a penny of benefit from the falling oil price, and there is little prospect of price cuts from gas and electricity providers. Inflation figures released earlier this week showed that the sector is now the biggest single factor in rising household bills. The average annual home energy bill is £1,246 – 111 per cent higher than five years ago.

Joe Malinowski, the managing director of The Energy Shop, warned households not to expect price cuts any time soon and added that bills could even rise higher. "The market is finely balanced at the present time," he said. "Risks of further gas price hikes have receded but ... there is a risk of a further 10 per cent increase in electricity bills in the spring of 2009."

One problem is that the dollar price falls of oil have not benefited Britain because sterling has fallen in value by 15 per cent against the US currency since the beginning of the year. In addition, the wholesale gas market has been unnerved by problems with supply from Norway, while the electricity market has also seen supply fall, with British Energy suffering a series of outages at its nuclear power stations.

BA, Britain's flag carrier, has come under some criticism for the speed at which it has reacted to falling oil price falls. The Air Transport Users Council has attacked BA for maintaining the level of its fuel surcharges when a whole string of airlines, including Cathay Pacific, Air France KLM and Thai Airways, had brought their prices down. However, BA claimed the rising value of the dollar removed any benefits from the fall of oil.

BA's eventual capitulation came just one day after a similar announcement from Virgin Atlantic. Both companies' new policies came into effect at midnight last night.

The two airlines are currently subject to an Office of Fair Trading criminal investigation into price-fixing of fuel surcharges on long-haul flights. Four current and former BA executives are due in court next month.

The turmoil in the world economy is hitting the airline industry particularly hard. Willie Walsh, BA's chief executive, characterised the combination of ballooning oil prices and slowing consumer spending as a "devastating combination". Up to 30 airlines have already gone bankrupt, before the traditionally difficult winter season has even started, and BA's traffic figures for September recorded a six per cent drop as the company carried 165,000 fewer travellers than the same month the previous year.

But rival carriers said it would take more than a small tweak to fuel surcharges to lure back cash-strapped customers. Ryanair described the reductions a "token gesture" and called for prices to be cut by at least 40 per cent on all routes if BA is to stop "ripping its passengers off". The last time oil prices dipped below $90 per barrel, the flag carrier's levy on long-haul routes was £58, compared with £90 today, according to the Irish company.

Oasis, Silverjet and Zoom have all gone bankrupt in recent months, as fuel costs shot up to account for more than a third of most carriers' costs.

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